Public Bill Committee

[Mr. Joe Benton in the Chair]

Further written evidence to be reported to the House

H&R 04 RADAR
H&R 05 Northamptonshire County Council
H&R 07 Campaign to Protect Rural England

The Committee deliberated in private.

On resuming—

Joe Benton: Order. Before we begin, I ask everyone in the room to ensure that their mobile phones are switched off. Would the witnesses like to say a few words of introduction?

Neil Sinden:   Thank you for the invitation to give evidence, which we welcome. I shall kick off with a few brief words about the four main areas of concern that the Campaign to Protect Rural England has about the Bill, and the areas on which we would like the Committee to focus its attention.
CPRE recognises that we need to supply more homes to house a growing number of households. We believe that the new agency and the provisions in the Bill should help considerably in achieving that objective. However, it is also important for the Committee to note that the delivery of new housing and associated development has a significant environmental effect with regard to land take and associated activity, so it is vital that the new homes are provided in ways that meet housing needs and minimise unnecessary harm to the environment, and that the planning system is used effectively as a means of achieving that objective and engaging local communities in critical decisions.
There are four areas that we would like to focus on during this session. The first area relates to the scope of the powers available to the new Homes and Communities Agency and the possibility of conflicts of interest arising in relation to the scope of its powers. The second area relates to the agency’s role in promoting housing-led brownfield regeneration and the extent to which the Bill provides an adequate framework for the agency to focus on that objective. The third area relates to the extent to which the agency should be subject to a duty to deliver sustainable development and wider public benefit in its activities, including powers to dispose of land, assets and buildings. The fourth area relates to our interest in exploring the extent to which the Bill could give a greater focus to the specific needs for affordable housing in rural areas.
There are three aspects of that agenda that we would like to talk about: first, the scope and potential of community land trusts in rural contexts and the extent to which the Bill could address that issue; secondly, the possibility of making the agency subject to a target for the delivery of affordable homes in rural communities, picking up on the Affordable Rural Housing Commission’s recommendations; and thirdly, we wonder whether it is possible to look at how a rural exemption might be developed in relation to the leasehold enfranchisement legislation, which we and other rural bodies fear might encourage a leakage of affordable housing in the shared ownership sector in rural areas.

Joe Benton: Ms Gordon, do you have anything to add to that?

Kate Gordon:   That will do as a basic introduction, as we shall come on to the details.

Q 125125

Alistair Burt: I appreciate what you have said in fleshing out your memorandum. I think that you will be pleased with an amendment that we have already tabled, which mentions community land trusts. We might explore that with the Minister this afternoon to see whether is interested in helping with that amendment.
There has been a lot of focus on urban building, and I was interested in what you said about the provision of housing in rural areas, but of course that always raises more concern about land take and so on. Do you think that there is any way in which those two important concerns can be reconciled through the Bill? Will the Bill help to deal with the problems of green belt pressure while meeting the need for affordable housing in rural areas, or is there something in particular that you would like to see inserted that would enable those two issues not to conflict but to deliver what people want?

Neil Sinden:   Kate will deal with the details, but I think that there are two specific areas, one of which I have alluded to—the potential that the Bill presents to give the agency a focus on urban brownfield regeneration. First, we believe that English Partnerships, one of the predecessor bodies, has done some extremely valuable work in helping the Government to meet and exceed their commitment to reuse brownfield land for housing over the past 10 years. English Partnerships has played a key role in achieving significant improvements in performance. We want that role to continue with the new institution, but we do not think that the Bill necessarily has the right provisions in place to secure that focus in the future.
My second response, to return to my point about the appropriate use of the planning system, is that the system operated by local planning authorities across the country has played a part in delivering the brownfield regeneration that has benefited many towns and cities. Of course, the agency will be given quite extensive planning powers—potentially both plan making and development control—under the Bill. It is critical that, in performing those functions, the brownfield-greenfield balance is struck correctly.

Q 126

Alistair Burt: How do you feel about that? District councils are often concerned about the green belt, because democratic pressure is exerted by elected councillors. There is therefore concern, particularly in rural areas, that if local planning authorities lose their powers to another body, it will become much easier for decisions to be taken which may damage the environment. The agency could make such decisions on the basis that not enough houses were being built in an area, so the local democratically elected planning authority could be ridden over roughshod. Is that a concern of yours?

Neil Sinden:   That danger very much exists and it is a serious concern of ours. We urge the Committee to look at how it might amend the Bill or associated provisions to reduce the possibility of that danger emerging. Kate, did you want to say something about our specific concerns regarding the planning powers of the new agency?

Kate Gordon:   The extent to which the powers are likely to be used, and how often, needs to be clarified, as does the criteria that the Secretary of State might apply to designate the agency as a planning authority. That is not quite clear enough, because the Bill relates to a number of different Acts. I understand that there is a provision or duty in relation to a public health Act that has some sort of tangential requirement for the agency when there is no local planning authority to work with. It is not clear enough in the Bill, and we feel that there is a danger that it will be used to impose agendas on communities that do not want to go down a certain route. We think that meeting housing needs and increasing housing supply is best achieved by working with communities, rather than imposing particular solutions or actions on them.
The other thing worth bearing in mind—and we called for this in the evidence that we submitted earlier this week—is that the rules on best consideration should be clarified to allow, require or encourage the best outcome for communities regarding land disposals and land use, over which the Housing and Communities Agency has influence and control. That should be the overriding objective, which should secure the most effective use of land in the public interest—sometimes that will be development and sometimes it will be other things, but it should not be wholly focused on the best market return.
There is a good opportunity when dealing with publicly owned land, or an authority with planning powers, to achieve a broader outcome in the long term, such as homes and communities’ interests and better environmental standards. I therefore hope that the Committee will look at that as an avenue for providing appropriate affordable housing in rural areas.

Alistair Burt: To follow up that point, do you share the concerns about design? Do you think that design might be usefully included as one of the objectives of the agency?

Neil Sinden:   We want to consider that carefully, because the Commission for Architecture and the Built Environment has a strong interest in the design agenda. We hope that, whatever happens, the new agency will work closely with CABE or any successor body in ensuring that we secure the standards of design that we need to see in terms of environmental standards—we welcome the sustainability certificate provisions, although we believe that there are opportunities to extend the detail of environmental issues covered by the certificates—and ensuring that we do not, in a rush to deliver the numbers that Minsters want to see delivered, bypass the need to meet high standards for the long term, so that we do not build the ghettos of tomorrow.

Q 127

Angela Smith: I want to ask about an extra element. There is a balance between using brownfield sites and pressures on the green belt. Given the current debates about the use of flood plains for building, the environment is becoming an increasingly important factor in planning decisions. Do you not see that this could be a further complication of the work of the HCA? Do you see the need for the HCA to be required by the Bill to work closely with the Environment Agency?

Neil Sinden:   I think it would be welcome, as would greater clarity about the purposes of the new agency in relation to the wider environmental agenda, particularly the sustainable development agenda. Tackling the impacts of climate change, flood prevention and so on is central. Any greater clarity that the Committee can bring to those purposes would be very welcome and make it easier for the agency to collaborate with the bodies that it will need to collaborate with, in order to address the environmental challenges that we face—not just the Environment Agency, but also Natural England.

Q 128

Angela Smith: In the area that I represent we have steep-sided valleys so we build either on the brownfield sites on the valley floor or on the open spaces in the green belt on the tops of the valleys because the sides are more or less built-up. Those are difficult choices. Although it should work closely with the Environment Agency, is it not important that that is with a view to finding design solutions to enable us to build on flood plains, especially when the site is on previous brownfield land?

Neil Sinden:   Yes, I think that that will be a challenge, but I would point out that brownfield land, by definition, is land that has been previously developed. Therefore, on the face of it, it is a less risky option for redevelopment than an adjacent greenfield site, which may already be performing a useful flood prevention function, as part of a functioning flood plain. CPRE has addressed this issue in connection with the Thames Gateway agenda. We believe very strongly, and we have engaged in discussions with the Government’s design champion Sir Terry Farrell on this, that one can achieve the Government’s housing objectives in the Thames Gateway without extending the urban footprint on to greenfield land or green belt land. The flood risk, which is growing, increases the importance of refocusing our attention on making better use of previously developed land, if necessary, in ways that can minimise the risk of flooding.

Q 129

Iain Wright: May I take you back to a line of questioning that Alistair Burt was pursuing, about the selling of public land at less than best consideration? Clause 10 of the Bill states that that can be achieved through the consent of the Secretary of State. Given the need to balance the safeguarding of public funds with the regeneration of communities and the availability of homes, do you think that that clause helps that balance? It provides democratic accountability and parliamentary accountability.

Kate Gordon:   I feel that the clause as it is currently worded is a little bit too negative. We understand that English Partnerships has been rather reluctant and the power has not been widely used. The local authorities can use the general disposal consents orders to achieve disposals at less than best consideration, but we feel that there should be more encouragement to get broader best value, especially if it means delivering affordable homes and securing other community benefits, which will be long-lasting and easier to achieve. Some of these land exchanges are simply one Government Department charging another.
There need to be safeguards to avoid abuse, but equal weight should be given to social, economic and environmental benefits, rather than giving overriding weight to what are usually short-term financial considerations. When these issues are looked at in the slightly longer term, the financial case probably stacks up as well. Of course those wider benefits should be demonstrated over the longer term, but the broader best value needs to be in the equation, rather than as an exception to the rule, especially when dealing with assets.

Q 130

Iain Wright: To push that further, let us suppose that a scheme is potentially available, but a private developer says, “In terms of the value of land, I cannot make the numbers stack up.” If the price of the development was lowered, the developer would be able to consider a range of affordable and mixed housing. Surely that goes back to what the Secretary of State said—that could be beneficial for the wider community and for regeneration purposes, although it means losing the maximum potential for public money. Do you not think that it is right and proper that the Secretary of State has that focus on accountability and provides that approval?

Kate Gordon:   I think that schemes should demonstrate that they are achieving these wider benefits, and not just the highest financial return. That is how I put it—the benefits need to be broader. Perhaps the rules need to be clarified. I understand that some people feel that best consideration does take account of those other benefits, but in some situations it has not meant that; it has just meant maximum financial return. We need clarification on those rules, and some encouragement for the rules, and the exceptions, to be used.

Q 131

Lyn Brown: What is your definition of sustainability? You have talked about sustainable communities a couple of times, and it would be interesting to know your view.

Kate Gordon:   We very much like the definition in the UK sustainable development strategy, especially where it says that our activities are within environmental limits and should be given equal weight in a lot of decisions. We feel that perhaps sometimes it is not given the weight that it deserves. The implications of that particular part of sustainable development need to be brought out in legislation and practice. Perhaps part of the reason that we are here is that we do not feel that the Bill sufficiently addresses the environmental aspects and implications of the things that must be done to achieve development activity within environmental limits.

Q 132

Lyn Brown: I will go on to the second point that you raised that interested me, and try to link it to the first one. You said that you felt that in the development in the Lea Valley, there was no need to encroach on the urban footprint. You think that there are designs that could enable that to happen. Could you talk a little about those designs? Are we talking about high rise and high density?

Neil Sinden:   No, we are not necessarily talking about high rise, but we are probably talking about higher densities than we have seen delivered on average in housing development across the country. We believe that there are considerable sustainability gains to be made by the Government continuing to focus on the need to increase the average density of housing development. That not only reduces pressure on environmental resources but encourages the development of sustainable communities and activities within those communities—people can access services, leisure facilities and shops by foot, bike and other ways than the motor car. We can have a wide range of gains through the promotion of higher-density mixed-use development, and that does not necessarily mean high rise. In fact, if you look at some of the high-rise developments of the 1950s and 1960s, they are, when you take account of the overall area of the estates that they are often on, much lower density than some of the most desirable residential areas in parts of central London.

Lyn Brown: For me, when we talk about sustainable communities, we are talking about a living environment. That includes the environment, but we are talking about a living environment. I have some problems with things that I have heard and I would be happy if you could put me right and tell me that I am wrong. In London, there is a population density of 45.6 people per hectare. In my constituency in east London, according to the 2006 population estimates, we are looking at 72.4 people per hectare. At 45.6 people per hectare, London is already the third most populated part of Europe. The city is huge and very densely populated. Currently, 15 per cent. of England’s population lives on less than 1 per cent. of the land.
For me, if we are talking about a higher density still, we are talking about people living in very crowded conditions. Frankly, that does not seem to be sustainable because people need space, even if they live in London. I am hoping to see the Lea valley developed in such a way that it will take some of the pressure off the city and provide people with a good quality of life elsewhere.

Neil Sinden:   Kate will come in with the detail, but I know the Lea valley well. I live in east London—a very densely populated part of east London as well. Green space is critical to the vibrancy and vitality of urban communities. I believe that there are enough design solutions and examples of best practice, which English Partnerships and CABE have generated, to show that one can achieve both objectives at the same time—higher density sustainable communities with accessible and valuable green space.

Kate Gordon:   We need to look carefully at assumptions about town-cramming and population densities being too high. Our situation is not anything like Victorian times, since household sizes are so much smaller. One of the big problems is that we do not manage the relationship between traffic and people—especially in the public realm. That has a huge effect on quality of life in towns and in the countryside.
The main issue that needs to be tackled is how we can live communally in places that work. We know that you have to have a certain number of people in an area to make shops and services viable. If the densities get too low, they are not viable. As a social consequence, you might not have a local shop. There are also the environmental consequences of having to devote so much land to roads. Damage is caused by cars in terms of land take, pollution, danger and noise, creating unpleasant conditions.
It is worth bearing it in mind that urban areas can be redeveloped in a positive way. For example, an area may have become very run-down. A former industrial estate that was very low-density and had a lot of hard surfacing may be redeveloped. There are examples of previously developed land in green belts, which can be redeveloped in a way that is greener. You can get the environmental gain, an improvement in flood protection, and some homes and other facilities.
To assume that focusing the majority of developments on brownfield sites will lead to town-cramming and too high a density, is completely flawed because there are so many opportunities to get gains on almost every level.

Grant Shapps: On that point, I think that Kensington and Chelsea is the most densely populated area in the country.

Lyn Brown: It is also very rich.

Q 133

Grant Shapps: Yes, but it is interesting to see that sometimes density is desirable, and at other times is not. I want to lead you back to a question that you skipped over. The HCA is taking on considerable powers, not least because it is combining the powers of English Partnerships and the Housing Corporation and adding in a few more powers besides. Your direction of argument seems to be one of localism. You are concerned that the power that local authorities have at the moment might get trampled over. However, do you think—as I am sure the Government must—that in order to get this large number of additional homes built, some agency powers are required, or has the Bill just got this wrong? Which direction do you go in?

Neil Sinden:   Very much the latter direction. Although we want to emphasise the importance of local communities and a sound democratic basis for the way in which the agency carries out its planning functions, if it is given any planning functions for particular areas, sites or forms of development under the framework in the Bill, we welcome the potential that the new agency brings to tackle some of the very difficult problems that are inevitably associated with difficult-to-redevelop sites in certain locations. We welcome the direction of the Bill, but safeguards, checks and balances need to be put in place if not in the Bill then at least in associated policy guidance or secondary legislation governing the way in which the new agency carries out those functions.
You have mentioned the two main agencies that the new agency will be taking over responsibilities from, but the powers that it will take over from the Commission for the New Towns are arguably more considerable than that in terms of the issues that concern the CPRE to do with the planning and plan-making functions that the new agency will inherit from the Commission for the New Towns. That is why we are particularly keen that the Committee considers the potential for conflicts of interest between the roles that the agency will play as a landowner, as a planning authority and as a developer, and carefully bears in mind the need for local communities, community engagement and public confidence in the way in which the agency carries out its function as being central to the success of the new arrangements.

Q 134

Grant Shapps: What I am driving at is a characterisation of the CPRE’s position. You seem to be saying, “Yes, we need more homes,” but as an organisation, you believe that those homes can be largely built on brownfield sites and that the powers of the HCA may be too overwhelming. If that characterisation of your position is correct, what, in your view, would be the safeguard against insufficient housing being built? The whole thing could just seize up, some would argue, if there is not pressure from above. What do you think the mechanisms should be to ensure that that does not happen?

Neil Sinden:   I am not sure whether I accept the premise of your argument. The agency will play, one hopes, a crucial role in addressing certain problems surrounding the development of particular sites. It will perhaps be able to bring together different agencies, developers and landowners more effectively than the current arrangements. In doing that, it will be backed by financial resources that will enable it to deliver, one hopes, significant quantities of affordable housing. However, one has to recognise that market housing provision will probably remain the predominant means by which the nation’s housing needs will be satisfied in the long run, and one cannot help but observe in relation to the current economic climate surrounding the housing market that we are likely to see less output from the private sector over the coming decade as a result of market conditions than we have in the previous decade.
It is important that the reality of that situation is understood and that the Committee and the Government in particular recognise that there are limits to what they and a new agency can achieve in terms of sustaining overall levels of housing supply in the long run. That is not to say that we do not welcome the potential of the agency to ensure a significant increase in what we would describe as the affordable housing component of housing supply over the next few years, because that is where the need lies predominantly.

Q 135

Nick Raynsford: You have just made a remarkable comment. You have said that you expect less housing output from the private sector over the coming decade than there has been over the past decade. Do you really believe that, because it means that the whole Government objective of increasing output to 240,000 new homes a year is unachievable? It also means that what the house building industry is saying is wrong. I have taken evidence, in a different context, from a major house builder who believes that it is possible to achieve that level and that the current downturn will be only short term. Are you saying that you think that the house builders and the Government are wrong?

Neil Sinden:   One hopes that they are wrong. We were involved in John Calcutt’s review of house building, which came to the same conclusion as you that the house building industry can deliver the Government’s housing targets. While we welcome the thrust of the Calcutt review and its focus on brownfield regeneration—we are very encouraged that the house building industry sees a future in brownfield regeneration—I am not sure that the evidence is there in the scope of that review to justify the confidence of some parts of the industry.
I think that it is important to reflect on history. Kate will correct me if I am wrong, but over the past few decades, private sector housing output has been stable within the parameters of 10,000 to 20,000 homes per annum. It has fluctuated in response to economic cycles on a five-year or 10-year basis, but we have not seen the sector significantly respond to political pressure to increase housing output for some time now.
It would be wrong to suggest that the Government have only just woken up to the scale of the housing challenge. Successive Governments have been arguing for increases in housing output, but from the evidence before us, the private sector has not been able significantly to increase output in response to the scale of that need. That is why we welcome the fact that the focus of both the new agency and the spending review in terms of the housing settlement is on increasing the funding available for affordable housing provision through registered social landlords and, hopefully, through local authorities.

Q 136

Nick Raynsford: Given the shortages, and the widespread acceptance that we have underprovided significantly in recent years, are you seriously suggesting that there will not be an upturn in private housing provision over the next decade? What evidence do you have? Is it just a hunch, or do you have economic evidence, which is a different thing?

Neil Sinden:   There is evidence that house builders are beginning to constrain output in the light of the downturn in the market.

Q 137

Nick Raynsford: In the short term?

Neil Sinden:   How long is short term?

Nick Raynsford: Not 10 years.

Neil Sinden: One hopes that we will see through the downturn in the cycle in a shorter space of time than the next decade—perhaps I should correct my rather risky prediction and say that the cycle may be shorter than a decade. My point was that we will continue, as a nation, significantly to depend on the market sector to meet the housing needs of the nation. We need to be realistic about the way in which the private sector responds to market signals. I do not believe that the Government have the full reality of that situation in their view.

Q 138

Nick Raynsford: May we turn to a different question, because time is short? You put a strong emphasis on planning powers being
“exercised by democratically-elected local planning authorities which take account of public consultation.”
I am taking words from your written submission, which you have reinforced with your verbal evidence. Let me tell you a story. Five years ago, on a brownfield site in my constituency which, as you know, is in the inner city, a developer proposed an infill housing scheme for 130 new homes, entirely in conformity with the London plan. However, there was a strong local protest. People did not want to have new houses built outside their front doors. As a result of that protest, which produced more letters and e-mails of protest than the Iraq war—that is an indication of the extent of the community concern—the local authority overrode the officer’s recommendation to grant planning consent and refused it. Was that right?

Neil Sinden:   It is difficult for me to comment on a particular case, but the CPRE recognises that opposition to housing development is sometimes not fully justified. There may be some justification for opposition in the light of, for example, the availability of, and access to, green space.

Joe Benton: Order. Sadly we have run out of time. Perhaps you would like to continue your comments with Nick Raynsford at some later stage. On behalf of the Committee I thank you, Mr. Sinden, and Ms Gordon for attending and for your contribution this morning.
Good morning, gentlemen. Thank you for coming. Would you like to give an introduction?

Julian Ashby:   I am Julian Ashby, a director of Tribal Group, as is my colleague Derek Joseph. We both have more than 30 years’ experience of working in the social housing sector, and our main expertise is probably in relation to part 2 of the Bill. We have both been involved in rescues, when there have problems and housing associations have got into difficulties. I was the independent housing adviser to the Cave review, so I am aware of that context, too.

Q 139

Nick Raynsford: I have already given a general declaration of interest, but I should make it clear that some years ago, when I was working as a housing consultant before I became a Member of this House in my present constituency, I sold the business that I then ran to a company that was then controlled by our two witnesses. I do not think any current interest is involved at all—it was 15 years ago—but it is right that that interest is made clear before I ask any questions.
I want to ask for a comment on the lengthy time it has so far taken and is likely to take to bring the Homes and Communities Agency into operation, on the basis of the stated intention to bring it into operation by April 2009. That is a long time scale, which would not apply in the case of a merger in the private sector, and it must pose certain challenges to delivery. Will either Mr. Ashby or Mr. Joseph comment on that and on the measures that they would like to see taken to minimise the problems that flow from the protracted process of merging English Partnerships and the Housing Corporation and bringing the new HCA into existence?

Julian Ashby:   It is a long time, and that creates difficulties for those who have to keep grant and development flowing in the intervening period. I guess that the full burden will fall on those who are operating the interim arrangements, and that is largely outside our experience, but we understand there are interim arrangements in place to try and overcome those difficulties. However, it is usually the case with mergers that, once you have decided to do one, the sooner you can give effect to it the sooner everyone can settle down into their new relationships. It is therefore better to do it quickly, so I agree with that concern.

Derek Joseph:   A couple of technical issues have arisen. First, the cost of finance for registered social landlords is—

Joe Benton: Order. I am sorry to interrupt, Mr. Joseph, but can I ask you to speak up?

Derek Joseph:   One of the key delivery aspects for registered social landlords is the cost of finance to housing associations from the banks. The banks are now using a new risk measure for assessing, known as Basel II. That means that they have to assess the risk of default. It has been quite difficult for them to move to that. There have been other crises in the banking sector recently to distract them. They have not had an understanding of what level of intervention there will be from the future regulator. One of the results has been more reluctance from the banks to lend to housing associations. Margins have crept up because of that interpretation of risk, which has an effect on the viability of projects. The delays have also affected the viability of projects.
The other effect has been that housing associations in their own business planning cycles have been saying, “Well, with this level of uncertainty, we need to diversify.” So they have tended to move into non-grant areas, away from social housing into market and affordable housing. In a sense, that it is to protect themselves because they are uncertain about the future level of programme. It has had an influence on activity too, as well as creating a degree of uncertainty through the programme.

Q 140

Nick Raynsford: Another element of uncertainty that has been voiced is whether the new regulatory powers might affect the classification of housing associations as non-public sector bodies. That has been voiced by, among others, the National Housing Federation. Do you have any observations on that?

Julian Ashby:   We are concerned. When working on the Cave review of social housing regulation, we sought advice about the classification because we were keen that the recommendations should not put that at risk. The aspect of the Bill that gives me concern relates to clause 177, in which the Secretary of State will have the power to direct the regulator not simply to set standards in particular areas but to set the content of those standards. It seems to undermine the purpose of having an independent regulator if the Secretary of State then determines the detail of the standards that were for the regulator to set. That ability of the Government to determine exactly how registered bodies should undertake their work brings the risk that they will be classified as public bodies.
The overall assessment of whether something is a public body is made on a rounded judgment. It is not a single-issue matter, but the more the Government have the power to intervene directly, the greater is the risk of classification as a public body. It is an enormous risk to run in that a change in the classification would at a stroke transfer some £30 billion of debt on to the public sector net cash requirement. In terms of the future programme, in very round terms, the Government expect the private sector to contribute roughly twice the level of grant into the provision of the new homes programme. Therefore, if all of that debt is treated as public sector debt, it would be quite unfeasible. Personally, I feel that it is not a risk worth running.

Q 141

Nick Raynsford: You have so far in your evidence highlighted various areas where uncertainty or delay may be damaging to the delivery of the programme and where an element of risk and uncertainty could be very problematic. Have you any thoughts about practical steps that can be taken to minimise the period of uncertainty and to bring greater clarity to areas that are currently open to different interpretations?

Julian Ashby:   We are talking about two agencies. That process can start as soon as possible, once the new regulator’s scope of operation has been determined and he can say how his organisation intends to go about its role. That should start giving comfort to people, so they should begin to understand how things will work out. Above all, it is uncertainty that is causing problems.
Similarly, even if no way is found to accelerate the establishment of the HCA, the sooner that interim bodies can indicate how they will operate and how the following years’ programmes will operate, and so on, the more uncertainty will be reduced.

Derek Joseph:   One thing is causing concern above all on regulation, which is that during the past few years the Audit Commission has become pre-eminent in inspection of housing associations. That is partly because the Housing Corporation has been more concerned about its future role than in pushing the way in which it regulates, with the result that regulation has been pushed more into the management side of the organisations and less into financial and development capability, which do not earn stars from the Audit Commission.
We still do not know whether the Audit Commission governing instruments will be changed, or whether two layers of regulation will remain. We do not know which will be more important. In the larger housing associations, enormous resources and time are spent just in trying to please the Audit Commission. Financial viability and development of programme concerns have been pushed back, and are less important, which has been a continuing cause of damage.
It would help to deal with uncertainty if the future scope of regulation and the role of the Audit Commission could actually be determined and announced, such that the associations knew their working parameters.

Nick Raynsford: You have highlighted a tension between different aspects of the business and the emphasis that is given to them. Might there be a lesson from history that points in slightly the opposite direction to the one that you have suggested? It is arguable that, for a period of time—certainly in the 1960s and 1970s, local authorities gave more attention to development than to management and maintenance of their stock, and that some of the problems that we have inherited in lack of good management and maintenance result from that. The outcome has been a terrible legacy. Is there a risk, as housing associations get larger and as attention focuses increasingly on a small number of them doing a lot of development, that exactly the same culture will develop, whereby development is perceived as the attractive and exciting part of the business, and management and maintenance are relegated?

Julian Ashby:   The role of the new regulator has a clear focus on services to residents. That is one of the reasons why the Cave report recommended that there be an independent regulator and that its functions should not co-exist with the HCA. I think that my colleague was making the point that, even with the new regulator’s focus on housing standards, it is still unclear whether the Audit Commission will retain a role. So there is an outstanding question not just of double regulation but of triple regulation, which is unhelpful.
It is entirely appropriate that there should be a continuing focus on the standards of housing management. What happens to the existing stock will continue to be much the most important element, however. However successful the new housing programme is, the existing 4 million homes in the social housing sector are the major resource. Even if you add to it 40,000 or 50,000 homes a year, that is still a drop in the ocean compared with the 4 million, the use of that 4 million and the standards of that 4 million at present.

Q 142

Andrew Love: May I pursue what I think was going to be the next train of thought? We have seen a lot of amalgamations take place involving housing associations. Certainly the developing housing associations are getting much larger and, in a sense, much more distant from the tenant down on the ground floor. That process is likely to continue with the new HCA and yet at the same time Oftenant will say to the HCA, “No, no, you need to have a priority for management and maintenance”. Is there a tension there and, if so, should we be examining how we can ensure that that tension is not as taut as it might turn out to be?

Derek Joseph:   I think that the inspection and regulation regime at the moment is one of the key drivers that have pushed housing associations into amalgamation. It is rather a defensive strategy for a lot of smaller and medium-sized housing associations to go into those groups. I think that there has been a lack of strategy about how the regulator and, in a sense, how the Housing Corporation as the promoter have wanted to see the industry of housing associations and the structure of that industry. There has been pressure from the different types of regulation and also from the way that the funding of schemes has been developed; obviously, the Government wanted to push down the level of grant. There is a danger that housing associations are amalgamating for reasons that are not about the levels of service; the reasons are more about dealing with financial pressures and regulation. That is a problem.
There have been two regulating inspectors who, over the last few years, have effectively had a turf war between them. As a result, housing associations have felt very much that they are on the defensive and that they have had to deal with too much regulation. One of the consequences is that a lot of governing bodies who are voluntary or whose remuneration is very low have felt that there is too much pressure; it is like trying to run a big business with a lot of people on your back. They have said, “Well, actually, we are better off in a bigger organisation”. So I think that the reasons for those mergers are, very often, not to do with the levels of service. That is a danger for the future.

Q 143

Andrew Love: Should there be a role for Oftenant to comment on that process of amalgamation?

Julian Ashby:   Our view—it is also expressed in the Cave review—is that the regulator should have the power, which the Housing Corporation currently has, to approve any merger. We believe that, in addition to the reasons or criteria that the Housing Corporation has tended to use, the competitiveness of the sector should be a criterion in the future, as it is in the consideration of mergers in other sectors. You should not allow a situation to arise in which a particular provider becomes so dominant in an area that, effectively, there is no choice between providers. That is an important issue, and the approval of mergers should be a power of the new regulator, which I think is what has been proposed.

Q 144

Andrew Love: Finally, there is a drive for housing associations to move into market housing, which will become an increasing part of their activities. Should the regulator be able to comment that perhaps the focus of the organisation is changing to such an extent that its requirements under the regulator are not being looked after?

Derek Joseph:   Yes. The regulators do that to an extent, at the moment. In a sense, they run various tests on the process. The problem is that on one side they are saying that you must drive down grant through cross-subsidy, and on the other that you do not want to take too much risk. You cannot have it both ways. If you want to drive through cross-subsidy for what, in effect, is the construction and sale of property, if you just sell off the for-sale land to a developer, you reduce the level of cross-subsidy that you are going to get. In a sense, there needs to be a line on the strategy about what is expected and how those pressures will be balanced.

Q 145

Iain Wright: May I take you back to the regulatory regime, the risk of double or triple regulation and the role of the Audit Commission? My feeling about the proposed regulatory regime is very clear: the Audit Commission will continue to have a role, and the regulator will commission work for the Audit Commission, but there will be no routine inspections, which will be risk-based and based upon a particular organisation or area where residents have raised concerns. Is that not well understood? Have the Government been lacking in articulating that clearly? What else should we do to advance what I think is a very clear line?

Julian Ashby:   My understanding, which may not be correct, is that there has been no repeal of the Audit Commission’s power to inspect housing associations as and when it wishes. It may be the intention that it should do so only when commissioned by the new regulator, but as I understand it that is not how the powers remain at the moment. If it is clear that the Audit Commission’s remit is only to undertake commissions on behalf of the regulator, that would indeed be an important clarification, which would resolve the dilemma. However, at present that is not the case.
The Audit Commission has the ability to inspect as and when it wishes. It may, as a matter of policy, decide not to do routine inspections, but that is its judgment and not that of the Housing Corporation. At present, the Audit Commission is in no sense answerable to the Housing Corporation in terms of commissioning inspections. Unless you change the legislative basis, those underlying powers will run on under the new legislation. It is important that that matter is clarified.

Derek Joseph: There is an expectation that logic will dictate when there will be inspections. Inspections will cover all the activities of the organisations and will not just concentrate on part of the activities, which are seen as very difficult to manage at the moment. Even if that is understood, there is an expectation that logic will dictate when the new regulator will have an inspection regime, which, when it happens, will cover not only management activities, but all the activities of the registered body.

Iain Wright: Mr. Benton, may I take a separate line of questioning?

Joe Benton: Yes.

Q 146

Iain Wright: On Tuesday we took evidence from the Council of Mortgage Lenders, which mentioned similar things to you in terms of more onerous requirements as a result of Basel II. It was probably more risk-averse and timid than perhaps it should be, and I want to press you on the points that you raised earlier. Given that housing is at the top of the political agenda, there is a commitment for 3 million new homes with a massive role for housing associations. For lenders in a risky and turbulent financial market, that would be a sure-fire bet. Are you seriously telling the Committee that because of increased risks and reduced margins lenders may take a commercial decision to pull out of lending to housing associations for building?

Derek Joseph:   Last week, one of the big lenders pulled out of the sector and sold its book, although new lenders may be coming in. I do not think that a lot of them will pull out, but they are pushing up margins. It is difficult at the moment to identify which reason is pushing up margins, because there is so much turmoil in the financial markets. The housing associations have stepped back from negotiating new loan deals over the last few months for the same reasons, hoping that the market will stabilise and margins will come down. However, there is reasonable evidence that the lenders have more concerns. In the past, the small and medium-sized associations have virtually had the same margins as the larger associations, because the role of the regulator virtually means that there is a level playing field, whatever size your assets are and whatever your background is. Over the past six months that has noticeably changed, with the larger more asset-rich associations getting lower margins, which means that their projects are more viable. That also pushes mergers forward.
What you have at the moment is the starting point for some concerns. It is quite difficult, in the messy financial world at the moment, to know exactly which direction things are going in, but there is some evidence that associations do not see it as totally risk-free, and therefore one of the benefits of being in the sector is starting to move away from them, in which case they look for either a higher margin or less exposure.

Q 147

Iain Wright: I take your point, but even in the context of virtually zero risk—there has been no default over the past 20 years or so—and the feeling that margins have been squeezed, this is ultimately virtually risk-free investment.

Derek Joseph:   The history has been one of zero risk, because the regulator has intervened. It is not that registered landlords have not got themselves into trouble, but that intervention always ensured that the lenders received their debt back at the end of the day. There is a nagging worry now that that may not be the case in future. Whether lenders are using that as an opportunity to push up margins or not, you hear that point every day, and some worries in respect of this sector are coming back from the lenders.

Julian Ashby:   I want to add, first, that the number of lenders in the market that can consider the really major lending opportunities is quite narrow. There are about half a dozen such lenders, so not a lot of lenders are currently actively lending into the market. Secondly, they are apprehensive simply because there is a degree of uncertainty about how the new regulatory regime is going to work.
The third element is probably not simply the turmoil in the financial markets, but the combination of increasing reliance on sales income for the viability of development programmes and what might happen to house prices, combined with the fact that there are now larger RSL groups and a worry about the ability of the Housing Corporation, or the new regulator in future, always to be capable of solving each financial problem as it arises, predominantly by finding another group to take over the troubled one. That could become more difficult, because if, for example, one of the larger ones got into difficulties, that option might be much harder to exercise.
I share your overall view that this is still a very attractive market to lenders, but there are a number of factors at present that have given them increased anxiety, making them more reluctant to lend either until those uncertainties are removed or until they up the price, which there is evidence that they are doing at the moment.

Q 148

Nick Raynsford: Can I press you on this? We have heard two bits of evidence that seem to go in opposite directions. First, we have heard that, recently, larger associations have been getting better margins, presumably because lenders feel more confident in them.
Secondly, we have heard about the risk that the existing regulatory regime may find it more difficult to cope if larger associations get into difficulty. There is no evidence whatsoever that the existing regulatory regime cannot work at the moment. The Ujima situation over the past few weeks is a classic illustration of where it appears to have worked rather well so far—although it is, perhaps, premature to say that—to avert a problem. If there really were a worry that the risk might be greater with associations getting bigger, surely lenders would not be offering them better margins than smaller associations.

Julian Ashby:   Relatively, the margins for the larger associations are better than for the smaller ones. However, my understanding is—subject to my colleague correcting me—that all the margins have increased. It is not simply an issue of the relationship between the two. There has been a general increase in margins to the larger and the smaller ones.

Q 149

Nick Raynsford: That is despite the very good track record of the regulatory regime to date and despite the fact that problems in the sub-prime market are not part of the problem for your sector.

Derek Joseph:   It is still seen as a very low risk. When we are talking about margins increasing, they are still well below what commercial companies pay. Bradford and Bingley was able to sell its RSL book ahead of any of the other books that it was trying to sell because the market saw it as an attractive thing to purchase.
You are talking about levels of risk, but there is a reason why the large RSLs are seen as less risky. On the whole, they tend to have a bigger portfolio of older stock. The equity of a housing association is in the properties that it developed in the ’60s and ’70s, where it has virtually paid off the loan and grants are very little, so if it needs to sell properties to pay debt, it has a good stock of them. If you are a newer association, such as a stock transfer where you do not have long-term security, you are inherently more risky.
There have been other reasons—little pin pricks. For instance, the Council of Mortgage Lenders mentioned that the Financial Services Authority has pushed up the weighting that is used for calculating the margin on RSL debt, which has pushed that up a bit. There are still lots of unresolved tax issues on shared ownership that everyone has been waiting to resolve. A whole set of issues has made the lenders slightly more nervous than they were six months ago.

Nick Raynsford: And, of course, the situation is not resolved yet.

Q 150

Andrew Love: There is a procedural point that I am anxious to get your view on. We discussed the issue of the tenants’ right to manage with the Council of Mortgage Lenders, and there was some concern on the part of the lenders about whether tenant management was an appropriate way to organise the affairs of a housing association. On balance, the lenders said that you need to deal with every case on its merits rather than taking an in-principle decision. How do you view that?

Julian Ashby:   We looked at that area very closely in the context of the Cave review and concluded that the track record of tenant management organisations is varied—the approach has been successful in some places and unsuccessful in others. It has worked best where landlord and tenant groups have worked together to set up an arrangement, and our view is that that should be encouraged. However, if you made that an absolute right, it would not necessarily be worked up between tenant and landlord, and in that situation it would be very difficult to do well. Where it has the co-operation and support of the landlord, it has the best chance of success, which points to a voluntary rather than a compulsory arrangement.

Q 151

Andrew Love: I want to pursue your point about the role of the lender. I remember when large-scale voluntary transfer was going through. The lenders kept knocking on the door saying, “Don’t bring us in at the end of this process. Bring us in at the beginning.” Is there a role at the beginning of a process where tenants might want to express their right to manage, for bringing a lender in so that they are reassured all of the way through the process that it is viable?

Julian Ashby:   In most situations, tenant management is likely to involve a particular part of an association’s stock—if the situation involved a large association, the small percentage would be small, so there would be no point in bringing in a lender. In our experience, lenders are generally supportive of tenant involvement, because they want homes, which are their security, to be well maintained, but they would not be keen if standards of management or maintenance were to decline as a result of an imposed initiative ,because that would not be in their interest as lenders. Generally speaking, however, you would not find a situation in which all of the housing association’s stock was going to be transferred to tenant management, and it is really only in that context that lenders would need to be involved from the outset.

Derek Joseph:   Stock transfer is slightly different and my experience is helpful because, if the tenants understand that there is a charge on the property, what the role of the lender is and what the lender expects, there is a better understanding of what is expected. When you are talking about the right to manage existing stock, the lenders just look at the housing association as being responsible for controlling that.

Joe Benton: We have no further questions, so I would like to thank you, on behalf of the Committee, for your attendance this morning. Feel free to add anything further.

Julian Ashby:   If you will indulge us on one point, I want to add that we had a concern relating to the regulator’s intervention powers, and it bears on some of the issues that we have discussed. It is welcome that the new regulator will have a more graduated range of powers available to it than the Housing Corporation, because it is helpful to have the ability to lean as a regulator, as the only other option is a nuclear one. Intermediate powers are helpful, but the Bill sets out a rigmarole of a procedure for the use of any of the enforcement powers—our understanding is that that is because of concerns about the Human Rights Act 1998. However, if you take a situation in which a provider is not keeping up to date with their gas safety inspections—that issue has come up on a number of occasions—you would want a new regulator to be able to issue an immediate enforcement notice to get something done about it. Under the procedure, however, the new regulator would have to give a month’s warning and listen to representations that might be made at the end of that process—there is space for possible challenges—and only at the end of that could it do something. If the issue were to involve a draconian power, such as removing a manager or forcing a re-tender of the management of an association’s stock, it would be appropriate to have longer periods of time, but if it were the straightforward enforcement of something that evidently needs to be done, it would be too much of a rigmarole.
In the context of associations getting into difficulty, which they have from time to time, it is important that a regulator can act quickly in an emergency, but there is no provision in the Bill to exercise that kind of judgment. There is a single process that is fairly drawn out for all levels of intervention, and it takes no account of how dire the situation is at the time, which is potentially a defect.

Joe Benton: Thank you for that, I am sure that that comment has been noted, and thank you again for giving evidence.
Further consideration adjourned.—[Liz Blackman.]

Adjourned accordingly at nineteen minutes past Ten o’clock till this day at One o’clock.